Nw. Natural Gas Co. v. City of Gresham

• Citation: 374 P.3d 829,359 Or. 309
• Decision Date: 05 May 2016
• Docket Number: CA A150990).,SC S062535 (Control), (SC S062556), (CC 1107–08422
• Parties: NORTHWEST NATURAL GAS COMPANY, an Oregon corporation; and Portland General Electric Company, an Oregon corporation, Plaintiffs–Respondents, and Rockwood Water People's Utility District, Intervenor–Respondent, Petitioner on Review. v. CITY OF GRESHAM, a municipality and public body within the state of Oregon, Defendant–Appellant, Respondent on Review. Northwest Natural Gas Company, an Oregon corporation; and Portland General Electric Company, an Oregon corporation, Plaintiffs–Respondents, Petitioners on Review, and Rockwood Water People's Utility District, Intervenor–Respondent, v. City of Gresham, a municipality and public body within the state of Oregon, Defendant–Appellant, Respondent on Review.
• Court: Oregon Supreme Court

359 Or. 309

374 P.3d 829

NORTHWEST NATURAL GAS COMPANY, an Oregon corporation; and Portland General Electric Company, an Oregon corporation, Plaintiffs–Respondents,

and

Rockwood Water People's Utility District, Intervenor–Respondent, Petitioner on Review.

v.CITY OF GRESHAM, a municipality and public body within the state of Oregon, Defendant–Appellant, Respondent on Review.

Northwest Natural Gas Company, an Oregon corporation; and Portland General Electric Company, an Oregon corporation, Plaintiffs–Respondents, Petitioners on Review,

and

Rockwood Water People's Utility District, Intervenor–Respondent,

v.City of Gresham, a municipality and public body within the state of Oregon, Defendant–Appellant, Respondent on Review.

SC S062535 (Control), (SC S062556), (CC 1107–08422

CA A150990).

Supreme Court of Oregon.

Argued and Submitted May 11, 2015.

Decided May 5, 2016.

Bruce L. Campbell, Miller, Nash, Graham & Dunn, LLP, Portland, argued the cause and filed the brief for petitioners on review Portland General Electric Company and Northwest Natural Gas Company. With him on the brief was Jeffrey G. Condit.

Casey M. Nokes, Cable Huston, LLP, Portland, argued the cause and filed the brief for petitioner on review Rockwood Water People's Utility District. With him on the brief were Tommy A. Brooks and Clark I. Balfour.

David R. Ris, City Attorney, Gresham, argued the cause and filed the brief for respondent on review.

Lisa Rackner, McDowell Rackner & Gibson PC, Portland, filed the brief for amici curiae Avista, Idaho Power, and PacifiCorp. With her on the brief was Ruth Harper.

Katherine Thomas, League of Oregon Cities, Salem, filed the brief for amicus curiae League of Oregon Cities. With her on the brief was Sean O'Day.

Jesse E. Cowell, Davison Van Cleve, PC, Portland, filed the brief for amici curiae Industrial Customers of Northwest Utilities and the Northwest Industrial Gas Users. With him on the brief were Melinda J. Davison and Edward A. Finklea.

Before BALMER, Chief Justice, and KISTLER, WALTERS, LANDAU, BALDWIN, BREWER, and NAKAMOTO, Justices.^**

BALDWIN

, J.

Plaintiffs Rockwood Water People's Utility District (Rockwood PUD), Northwest Natural Gas Company (NW Natural) and Portland General Electric Company (PGE) seek review of a Court of Appeals decision upholding the validity of municipal enactments by respondent City of Gresham (the city) that increased the licensing fee that each utility was required to pay from five percent to seven percent of the utility's gross revenues earned within the City. Plaintiffs, collectively “the utilities,” sought a declaration that the enactments were void and unenforceable because they conflicted with the provisions of ORS 221.450

.¹ Alternatively, Rockwood PUD argued that it, as a people's utility district, could not be taxed more than five percent by a city without explicit statutory authority. On cross-motions for summary judgment, the trial court agreed with plaintiffs that the enactments violated ORS 221.450, and did not reach Rockwood PUD's alternative argument. On appeal, the Court of Appeals reversed, holding that the fee increase was not preempted by ORS 221.450 because the utilities were not operating “without a franchise” and that a city's home-rule authority to impose taxes or fees on a utility is not affected by a utility's municipal corporation status. Northwest Natural Gas Co. v. City of Gresham, 264 Or.App. 34, 330 P.3d 65 (2014). Plaintiffs sought review in this court.

We hold both that the license fee imposed by the City was a “privilege tax” and that the affected utilities were operating “without a franchise” within the meaning of ORS 221.450

. We also hold that the City was not preempted by ORS 221.450 from imposing the seven percent privilege tax on NW Natural and PGE, but that the City did not have express statutory authority to impose a tax in excess of five percent on Rockwood PUD under ORS 221.450. For the reasons explained below, we affirm, in part, the decision of the Court of Appeals on other grounds, and reverse in part.

I. BACKGROUND

The record on summary judgment in this case consists of exhibits and stipulated facts, which we describe to provide the historical backdrop to the present controversy. The factual background is fairly straightforward, although, as described below, the legal landscape is somewhat more complex. Prior to 2002, NW Natural operated within the City pursuant to a negotiated franchise agreement. In 2002, NW Natural obtained a 10–year utility license. PGE operated within the City pursuant to a negotiated franchise agreement until 1992, under a 10–year utility license between 1992 and 2002, and thereafter, under a new 10–year utility license. Rockwood PUD operated in the City under a 10–year utility license beginning in 2001, which was extended an additional 10 years in 2011. From 2002 until 2011, and pursuant to City ordinance and resolution, NW Natural and PGE paid license fees that consisted of five percent of their gross revenues from operations within the City. Beginning in 2003, and pursuant to City ordinance and resolution, Rockwood PUD paid license fees that consisted of five percent of its user fees. These fees are in addition to permit fees that the utilities pay when they need to do specific work within the City's rights-of-way.

In May 2011, while each of the utilities was operating under a license, the City adopted a resolution to increase the license fees from five percent to seven percent, primarily to avoid service reductions in the fire and police departments. The City informed the utilities that the new fees would be effective on July 1, 2011.

Plaintiffs then filed this action for declaratory judgment, seeking a declaration that the City's resolution was preempted by state law, which they contended capped the City's license fee at five percent because the fee was, in effect, a “privilege tax” under ORS 221.450

. As noted, Rockwood PUD also argued that the City could not charge the additional fee because it lacked specific statutory authority to do so. The City responded that ORS 221.450 did not preempt its home-rule authority to establish a seven-percent license fee, and that in any event the license fee was not a “privilege tax” and thus ORS 221.450 did not limit it in the manner suggested by plaintiffs. The trial court agreed with plaintiffs on their first argument, and consequently did not reach Rockwood PUD's second argument. The trial court reasoned that the utilities were operating with a license and “without a franchise” for purposes of ORS 221.450

, that, under this court's case law, a license fee of this sort is, in fact, a “privilege tax,” and therefore that ORS 221.450 preempted the City's ordinance to the extent it sought to impose a privilege tax of more than five percent.

The City appealed, and the Court of Appeals disagreed with the trial court's analysis. In particular, although it acknowledged that the plaintiffs stipulated that they all were operating under licenses rather than franchises, the Court of Appeals concluded that the utilities nonetheless were not operating “without a franchise” within the meaning of that phrase as used in ORS 221.450

. Northwest Natural Gas Co., 264 Or.App. at 42, 48, 330 P.3d 65. The Court of Appeals therefore did not address the questions of whether the city had home-rule authority to enact the ordinance or whether the license fee in question was a “privilege tax,” given its conclusion that in any event ORS 221.450 would not limit the City's ability to charge the fee because the utilities were not operating “without a franchise.”²

The utilities sought review of the Court of Appeals' decision. The parties reprise the various arguments they made in the trial court and in the Court of Appeals. Northwest Natural and PGE contend that the trial court correctly concluded that the City's license fee is a “privilege tax” for purposes of ORS 221.450

, and that the Court of Appeals erred in interpreting the phrase “without a franchise” as used in that statute. They contend that, historically, a “franchise” in this context is an agreement between a city and a utility, and that paying a unilaterally-imposed license fee does not create a “franchise.” Rockwood PUD reiterates those arguments, and also repeats its alternative argument that the City lacked statutory authority to tax a people's utility district at a rate greater than five percent. Amici curiae appearing on behalf of the utilities argue that, as a matter of public policy, the Court of Appeals' result in this case will cause hardship on utility customers, as the utilities will simply pass on the percentage of the fees charged by the City to the users in the city on a pro rata basis, and thus contend that the fees amount to a “stealth tax” on utility customers that the City would not have been able to impose directly. See 359 Or. at 333 n. 15 (discussing manner in which utilities pass on fees to consumers).

The City, in turn, argues that it had home-rule authority to enact the license fee and that the legislature, in enacting ORS 221.450

, did not demonstrate a clear intention to preempt such local fees. It further argues that the fee in question is not a “privilege tax” and that the Court of Appeals correctly concluded that the utilities in this case were not operating “without a franchise” because the licenses were a form of franchise. The City also asserts that ORS 221.420(2)(a) provides statutory authority for its imposition of a license fee on a PUD. Finally, in response to amici curiae's policy arguments, the City notes that the fees were established by ordinance through a political process and that constituents that oppose the fees may do so by taking part in that political process. Amicus curiae League of Oregon Cities also argues on the City's behalf that the Court of Appeals' analysis was correct, and that ORS 221.450 was never intended by the legislature to limit a city's ability to obtain compensation from utilities in the manner...